‘Britain’s wealth gap is growing – the Chancellor must address it’

Earlier this month, the Chancellor accepted the pressing need to tax wealth when she said that taxing higher earners will be “part of the story” as she presents her Budget next month. Her clear admission of the need for fairness in the tax system was no doubt warmly welcomed by Labour members, particularly given the results of a recent LabourList poll which found that a wealth tax is the most popular progressive policy among the party faithful.  

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However, while the Chancellor’s welcome focus on increasing taxes on wealth is driven by the need to raise revenues, the truth is that this is only one reason to grasp the nettle. Our tax system is in dire need of reform. The silver lining to this grim status quo is that there is plenty of scope to reform taxes on wealth in ways that can raise substantial revenues at the same time as making the system fairer, tackling wealth inequality and boosting economic growth. There’s plenty of low-hanging fruit to scoop up before any talk of trade-offs comes into play, as we at the Fairness Foundation set out in a recent report on taxing wealth, Win-Win-Win. 

When it comes to wealth inequality, there is no time to waste. Today we have released new research as part of our updated Wealth Gap Risk Register, showing that the absolute gap in total wealth between the richest 10% and the poorest 10% in the UK grew by 54% between 2011 and 2021, from £7.5 trillion to £11.5 trillion. This new analysis is based on the latest ONS data combined with evidence from the Sunday Times Rich List.  

Over 50% of the increase in wealth that widened the wealth gap over this period was unearned, caused by rising asset values. The gulf between those with assets and those without continues to widen in cash terms, preventing the 50% of the population who do not own any from building up wealth.  

The practical consequences of this divide stretch far beyond the moral case for equality of opportunity. Our report identifies 49 impacts of the wealth gap in the UK, showing its wide-ranging negative impacts on almost every aspect of our society and economy.  

Wealth inequality is not a necessary by-product of a prosperous economy – quite the opposite.

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It stifles economic growth by reducing consumer demand; blocking opportunity and wasting talent; harming productivity; tilting incentives away from productive enterprise towards rent extraction; skewing investment priorities; and undermining genuine wealth creation and healthy competition. There is no longer any doubt that wealth inequality is damaging social cohesion, eroding trust in our democracy, and undermining efforts to address environmental challenges. 

The message is clear – Britain’s unsustainable levels of wealth inequality are not merely a moral hazard, but represent a strategic risk to almost every facet of our national life. Taxing wealth properly would represent a crucial first step towards tackling this problem.

Reforms to taxes on wealth feature prominently among the set of 33 solutions that we present in the Wealth Gap Risk Register to address this corrosive wealth inequality. These proposals build on the research undertaken by organisations such as the Resolution Foundation, Demos and others, including reforms to capital gains tax and extending national insurance contributions to cover partnership income and rental income. There is a clear set of straightforward measures for the Chancellor to choose from, and she is right to say that claims of a resultant mass exodus of the wealthy amount to little more than “scaremongering”.  

However, redistributing wealth is only part of the picture. Government must also do more to share wealth more broadly in the first place, including by ensuring that a higher proportion of company profits go to workers, and to reduce the impact of wealth inequality on people’s lives. Building up public services and reducing the costs of essentials – including in areas such as childcare – would reduce people’s dependence on private wealth, as would bold reforms to our broken housing market. Action is also needed to weaken the iron grip of wealthy vested interests on political decision-making, which so often blocks or undermines necessary reform.  

Wealth inequality is set to continue to grow over the coming decades, turbocharged by the ‘great wealth transfer’ as inheritances are handed down very unequally by the baby boomers. This will, no doubt, be exacerbated by the unpredictable consequences of the AI revolution. The negative spillover’s impact on our society, economy, democracy and environment will snowball.  

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The time for bold action is now. In November’s Budget the Chancellor has the opportunity to fire the starting gun on change and to put the country on notice that the government will be taking the steps that are needed to mitigate the risks that wealth inequality poses to the nation. Such a programme would help to tell a better, more deeply felt story about a fairer Britain and about a government that is genuinely committed to acting in the interests of all of its citizens. 

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